Thursday, February 27, 2014

According to the Princeton
Review a SAT score of the mid to high 500 seems to be the lower range most
colleges expect. While the article takes pains to point out that the scores
listed in the chart are not “cut off” scores, students with those scores are
most likely to be considered.

All tests tend to have three
major groupings, a small group with high scores, a large group clumped around
the mean, and a group below average.

If the reports are true and
education is the key to jobs and financial success in the future, what happens
to the large number of people who score below the “minimums” for college
admission? If the tests are to be believed at all, those with too low a score
will not be able to either get into college or learn the material without which
they will not even get interviewed much less hired.

Americans came to expect that
most of us could find jobs that paid well enough for us to own our homes, have
cars, TV and the rest of the possessions of modern life. Many jobs at the low
end to the middle of the pay scale are disappearing as manufacturing and the
associated support functions move to lower cost locations outside the US. Where
do those displaced workers, and the new workers going into the job market for
the first time, at the same level, find new jobs that pay enough to live as we
expect them to be able to live?

This matters to you as a
business because those are your customers. No job and they don’t buy and it
doesn’t matter how inexpensive your product is.

Is there any way that she can add that much value in the next
year? The next 5 years? Since GM is a huge company with long lead times for a
new product to make it from concept to market there is very little Ms Barra can
do that will change GM in the next 12 months so we need to look at her
performance over the long term.

The prevailing theory is that the CEO of a company is
responsible for the “master plan” that a company follows and is also
responsible for how well that plan is executed and should be compensated for
success. The theory also postulates that to attract the very best you have to
outbid the competition or lose that candidate to someone else. This supposes a
limited supply of people with the training, experience and temperament to lead
any particular company.

What if that CEO is not unique?

There are 7,000,000,000 people in the world and while the
vast majority are not qualified or able to lead big corporations, it’s safe to
say that those who are able to lead, represent some small percentage of that seven
billion total.

We might argue over what that percentage is, but we can
surely agree that more than one person has those skills and abilities; if we
theorize a 10 percent number that gives us 7 hundred million potential people
who could replace your CEO. If we reduce that to 1% there are 70,000,000 people
who could do your CEO’s job.

Suppose that there is only 1 tenth (1/10) of one per cent who
could replace that mythical CEO and we still have 7 million replacements.

If any one of 7 million people could do that job, why the
heck is it worth anywhere close to what they are paying? Remember in the first
paragraph we stipulated that the high levels of compensation were justified by
the scarcity of the peculiar skills necessary and the limited number of
candidates to draw from.

Those huge CEO salaries and bonuses tend to be from a limited
number of really big businesses and the theory is that there are a really
limited number of people who are capable of managing at that level. Remember
that one tenth of one percent of the population of the world is seven million
potential candidates, then we must accept the improbable conclusion that the
senior managers of the Fortune 500 represent the top 0.0007% of people in the
world.

There is an old saying that “figures don’t lie but liars can
figure” but the simple percentages do illustrate an important point. You can’t
tell which of the seven million potential business leaders will end up being
worth those high compensation packages until after the fact. And, since much of
what a CEO does is long range planning you can’t tell until years later.

I submit that executive compensation has grown all out of
proportion to their contribution because execution is much more important than
planning. As General George Patton said: A good plan implemented aggressively
today is better than a perfect plan implemented tomorrow. Leading us to the
inevitable conclusion that the people implementing the plan are more valuable
to the company than any single leader and you should be compensating your
employees based on their value to executing that plan and not on their job title or how easy it is to replace
them.